- The S&P 500 added 6.62% in Q1 with all 11 sectors finishing higher, led by gains in “value” sectors.
- Volumes throughout the week were anemic despite Q1 drawing to a close, with Tuesday’s session being the lowest volume day of the year, breaking the prior low on 3/22/21.
- There were few surprises with the release of the $2.25T infrastructure package.
- Economic data remained upbeat with the release of non-farm payrolls, the unemployment rate, and the ISM manufacturing, with the latter touching its highest levels since 1983.
- During the session on Monday, April 5th, both the S&P 500 and Dow Jones closed at all-time highs as growth names outperformed value.
- The JPMorgan Global manufacturing PMI increased from 53.9 in February to 55.0 in March.
- The Eurozone Manufacturing PMI surged to 62.5 in March, up from 57.9 in February.
- In France, Emmanuel Macron announced a four-week national lockdown. The CAC 40 Index gained 1.91% last week.
- Under Boris Johnson’s new plan, everyone in England will have the option to take twice-weekly Coronavirus tests. The FTSE 100 dropped 0.05% last week.
- Taiwan Semiconductor Manufacturing Company announced last Thursday its plan to invest $100 billion over the next three years to address growing demand of chips.
Major U.S. equity indexes finished the shortened holiday week higher as growth and momentum meaningfully outperformed value, despite rates moving higher. Gains in the market appeared to be a product of the continued reopening of the economy, despite “reopening names” performance ending mixed on the week. With the end of Q1 wrapping up on Wednesday, the S&P 500 added 6.62% over the quarter with all 11 sectors finishing higher, led by gains in “value” sectors Energy, Financials, Industrials, and Materials.
Volumes throughout the week were anemic even as Q1 came to a close, and pension plans rebalanced to their long-term strategic allocations. Goldman Sachs estimated $65B was to be sold by pensions for quarter end, which would be the fourth largest estimate in the past three years. Each day volumes were below the 200-day average, while Tuesday was the lowest turnover day of the year with only 10.4B shares exchanging hands (breaking the low on 3/22/21 of 11.06B).
Treasuries initially jumped higher to start the week with the 10-year yield hitting 1.77% on Wednesday (which did not close there), gaining almost 10bps in three sessions before falling off to settle at 1.72%. The Dollar index and Gold saw muted moves throughout the quiet week closing up 0.1% and down 0.2%, respectively.
From a sector basis, investors saw the following:
- Tech rallied after another strong performance from Semiconductors, as the SOX added 4.3%.
- Consumer Discretionary gained after strength in e-commerce names, cruise lines, and homebuilders.
- Financials underperformed broader benchmarks after weakness in the banking space related to the implosion of Archegos, Credit Suisse, and Nomura being among the hardest hit, losing 16.9% and 18.9% on the week.
There were notable developments throughout the week (however, most did little to shift the overall narrative), which included:
- The releasing of infrastructure details from the White House
- The potential for continued global supply chain disruptions despite the container ship being freed in the Suez Canal
- Continued vaccine distributions, which overshadowed an uptick in cases
- The improvement of high frequency data noted by analysts and economists (card spending), air travel bookings, dining reservations, gas demand, and retail visits
There were few surprises when the White House released details of their infrastructure package, announcing the plan would initially be worth $2.25T over eight years and would be funded by 15 years of higher taxes. Additionally, another infrastructure package focusing on education, healthcare, and certain family issues could be outlined in the coming weeks, bringing the total sum of both packages closer to $4T.
The increase in taxes will look to be a combination of higher rates for corporations, moving from 21% to 28%, a higher rate for wealthy individuals (those making over $400K/year) and an increase in the global minimum tax.
COVID-19 VACCINE RAMP UP
Despite being meaningfully lower than the January peak, the week saw cases in the U.S. starting to tick back up with the seven day average increasing 11% week over week (touching just above 64K).
However, the higher cases were overshadowed by the continued vaccine distribution with the U.S. closing out Q1 with more than 150M doses already being administered. Helping add to the optimism was Pfizer and BioNTech who continued to highlight good efficacy statistics in adolescents, and said additional studies showed that their vaccine is highly effective up to six months after the second dose is administered.
U.S. equities rallied in Monday’s session as the S&P 500 and Dow Jones both set new record closes after the release of solid U.S. economic data fueled the risk-on narrative.
All S&P 500 sectors with the exception of energy, rose as the U.S. benchmark extended gains for a third straight session. The top performing sectors on the day were Consumer Discretionary, Communication Services, and Technology, all which gained over 2%. Growth outperformed Value; however, both factors saw solid gains with growth jumping 1.98% and value adding 0.93%.
The market was seemingly supported by the positive March employment data released last week when markets were closed on Friday for the Easter weekend. Non-farm payrolls surged 916K, well above the expected 660K set by economists, with some experts highlighting the broad-based job creations throughout the economy, as well as the potential for further improvement. The unemployment rate also ticked lower to 6.0% from 6.2% in February.
In addition to the employment numbers released on Friday, the ISM service Index number released on Monday echoed the same upbeat sentiment hitting an all-time high of 63.7, again above estimates of 58.5.
QUIET HEADLINE OF SESSIONS
Monday’s session was a quiet start to the week with some single name stock headlines receiving a bulk of the attention including:
- Tesla announcing 1Q deliveries hit a new high and came in ahead of expectations
- Palantir Technologies announced a five-year contract for the department of Energy’s safety analytics
- Google won a Supreme Court ruling that said they did not commit copyright infringement
There were some broad-based policy headlines; however, those did little to change the overall direction of the market, with investors shrugging off the following:
- President Biden saying he was not worried about the tax increase hurting the U.S. economy.
- Treasury Secretary Janet Yellen said the U.S. was working with G20 nations on a potential global minimum tax and called on other nations to avoid pre-emptive fiscal tightening.
- U.S. vaccines continue to be rolled out, with the seven-day average staying above 3M+ doses per day.
Last week, global equities advanced 1.06%, led by Communication Services and Information Technology. Growth stocks came back in favor after being re-rated throughout the first quarter. Energy showed some weakness as travel restrictions in Europe continue to delay the economic recovery. Industrials and materials kept trending higher amid the infrastructure spending proposal by President Joe Biden. The JPMorgan Global manufacturing PMI increased from 53.9 in February to 55.0 in March. The fundamentals are starting to reflect the return of growth and inflation.
The Eurozone Manufacturing PMI surged to 62.5 in March, up from 57.9 in February. Increases in purchasing activity, manufacturing output, new orders, and exports boosted the headline PMI. Higher demand fostered supply-side pricing power and pushed inflation to its highest level since April 2011. According to IHS Markit, “average prices charged by Eurozone manufacturers increased sharply in March”. Employment grew the fastest since August 2018, signaling growing business confidence in the recovery. The Euro STOXX Index gained 1.77% last week, led by industrials.
The President of France, Emmanuel Macron, announced a four-week national lockdown after the country registered 200,000 new COVID-19 cases and over 5,400 patients in intensive care. The new restrictions require schools and over 150,000 stores to remain closed. The government will spend around 11 billion euros in April to compensate businesses affected by the lockdown. French Finance Minister, Bruno Le Maire, revised the country’s GDP growth forecast to 5% from 6%. The CAC 40 Index gained 1.91% last week.
British Prime Minister Boris Johnson is facing political resistance in the United Kingdom (UK) regarding the use of COVID passports. Over 70 members of the parliament, including 41 from Johnson’s ruling party pledged to vote against “divisive and discriminatory” vaccine certificates. While the government works on the implementation of these controversial passports, everyone in England will be given access to take a Coronavirus test twice a week. Under Johnson’s plan announced on April 5th, international travel may resume starting May 17th. By June 21st, all restrictions are expected to be lifted. The FTSE 100 dropped 0.05% last week.
The Chinese government is planning to deliver $84 billion in tax cuts for small and micro-sized businesses as well as companies in advanced manufacturing. This measure is part of the COVID relief program targeting businesses that suffered the most from the pandemic. Rating agency S&P Global noted that this debt-funded capital spending would increase funding pressure for regional local
governments. Moody’s expects record high new onshore bond issuance by local governments. The China Caixin Manufacturing PMI edged down to 50.6 in March, versus 50.9 previously as the pace of economic expansion slightly decelerated. The Shanghai Composite index gained 1.4% last week.
Japanese Prime Minister, Yoshihide Suga, will be the first foreign leader to meet with President Joe Biden. During the meeting, both leaders will address topics such as China, North Korea, trade, and vaccine rollout. Japan is the only G7 country not taking part in China’s sanctions amid reports of human rights violations against the Uyghur ethnic group in the region of Xinjiang. Chinese Foreign Ministry spokesman Zhao Lijian said “we hope Japan can be prudent about its actions and rhetoric and does not make groundless attacks on China just because it is an ally of the United States. It does not serve Japan’s interest in doing so”. The NIKKEI 225 index gained 0.73% last week.
In India, surging daily infections above 100,000 pushed the government to mandate remote work as well as restaurants and mall closure. In the state of Maharashtra, authorities warned that hospitals could be overwhelmed in 15 to 20 days as more than half of the state’s hospital beds are currently being occupied. With over 12.5 million cases, India is the third largest epicenter of the virus after the United States and Brazil. The Indian Manufacturing PMI was 55.4 in March, down from 57.4 in February. Indian stocks jumped 2.48% last week.
In Taiwan, Taiwan Semiconductor Manufacturing Company announced last Thursday its plan to invest $100 billion over the next three years to address growing demand of chips. The company said in a statement, “we are entering a period of higher growth as the multi-year megatrends of 5G and high performance computing are expected to fuel strong demand for our semiconductor technologies in the next several years”. The IHS Markit Taiwan Manufacturing PMI rose to an 11-year high in March, with a 60.8 print despite supply chain delays. Taiwanese stocks gained 1.63% last week.
The information provided, including any tools, services, strategies, methodologies and opinions, is expressed as of the date hereof and is subject to change. Level Four Capital Management (“LFCM”) assumes no obligation to update or otherwise revise these materials. The information presented in this document has been obtained from or based upon sources believed by the trader or sales personnel or product specialist to be reliable, but LFCM does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this document. This material does not purport to contain all of the information that an interested party may desire and, in fact, provides only a limited view. Any headings are for convenience of reference only and shall not be deemed to modify or influence the interpretation of the information contained.
This material has been prepared by personnel of LFCM and is not investment research or a research recommendation, as it does not constitute substantive research or analysis. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject LFCM to any registration or licensing requirement within such jurisdiction. It is provided for informational purposes, is intended for your use only, and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned, and must not be forwarded or shared with retail customers or the public. The information provided is not intended to provide a sufficient basis on which to make an investment decision. It is intended only to provide observations and views of certain LFCM personnel. Observations and views expressed herein may be changed by the personnel at any time without notice.
Nothing in this document constitutes investment, legal, accounting or tax advice or a representation that any investment strategy or service is suitable or appropriate to your individual circumstances. This document is not to be relied upon in substitution for the exercise of independent judgment. This document is not to be reproduced, in whole or part, without the written consent of LFCM.
Asset management services offered through Level Four Capital Management, LLC an SEC-registered investment adviser.